FICO Credit Scores: What Do They Mean?

Since we live in an automated society, it's not surprising that your ability to repay your mortgage loan boils down to a single number. The FICO score is created by credit reporting agencies. These agencies use the payment history of all of your loans: credit cards, mortgages, car/boat loans and others.

The three reporting agencies use slightly different formulas to build a credit score. Fair Isaac and Cooriginally developed this score. . While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While each of the models considers a range of data available in your credit report, the differences aren't huge; all of the agencies use the following factors to calculate your credit score:

  • Your Credit History - How many years have you had credit?
  • History of Payments - Have you paid more than 30 days late, and how often?
  • Balances on your Credit Cards - How many accounts do you hold, and how much do you owe?
  • Credit Inquiries - How many times have lenders pulled your credit for the purpose of lending you money?

These factors are weighted a little bit differently depending on which formula the agency uses. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher is better. Typical home buyers likely find their scores falling above 620.

Your score affects your monthly payment

FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.

Raising your credit score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the credit score is entirely based on your lifelong credit history, it's difficult to change it quickly. (Of course you must have incorrect items removed from your credit report.)

Know your FICO

To raise your score, you've got to get the credit reports that are used to build it. Of course, you need the score as well. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three agencies. They also provide information and tools that can help you improve your FICO score.

You can get a federally-mandated free credit report once a year from the three major agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and inexpensive.

Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Want to know more about your FICO score? Call us at (203) 729-6681.

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